The next weeks/months are going to be fascinating to watch, as US regulators and invested institutions fight to both regulate and protect their crypto investments. Maintaining the inflated cryptocurrency valuations propped up by Tether while simultaneously removing it from the game before too many eyes set on it, will surely require subtle maneuvering.
Ultimately I do suspect OP indeed, sold early, as the game theory mechanics strongly favor just participating in the Ponzi rather than trying to bring it down, especially when this has the potential to be the one last great bubble before a major recession.
> For the rest of 2020, my inflationary thesis looked right
Just to make it clear: there's absolutely no broad inflation almost everywhere in the world, certainly not in the United States. It may still come, but inflation is not why Bitcoin is on such a tear. Look at CPI or PPI of you don't believe me.
Although this does remind me of the Green Lumber Trader story from Taleb. Congrats on the trade!
Why not TSLA/gold? That proves there is inflation! Or I know, BTC/USD, that clearly proves there's lots inflation and look at that bitcoin price is perfectly correlated with it!
(I am only half-joking here, the point is that broad inflation is much much more important than some bull market in this or that asset class)
On a more serious note a lot of commodities are looking really bullish, including some foodstuffs, and that's obviously not good news ...
You confused the numerator with the denominator. To get inflation we put a basket of things in the numerator, and currency in the denominator, then compute annualized % change in the said number.
Now if you swap (in the denominator) the USD for either gold or bitcoin you'll conclude we've been in a severe deflation in 2020.
(I do not agree with the above, I am just fixing basic mistakes in your reasoning)
If you would like your basket of things (the numerator) to consist solely of Bitcoin or gold then go ahead but you may as well put baseball collectible cards there, as it doesn't relate to people's consumption needs.
Inflation is already here, it's just that the wealth hasn't "trickled down" into the middle/lower class so consumer goods haven't spiked yet. It will seep out eventually, but right now it's mostly still sitting in financial markets and corporate accounts. The trillions (yes, trillions) of dollars that have been pumped into the economy via QE and other fed programs don't just go away.
Where's the inflation in the Eurozone? They're way ahead of the US. Or even better, Japan, "printing" like a madman since the 90s, uhm where is that inflation you mentioned?
But yes, they don't go away, such things actually cause deflation because they prevent recession-cleansing of inefficient organizations, keep property prices high, cripple people and organizations with debt, ...
Author here. I agree that past inflation has been minimal; what I was referring to was the expectation of future inflation after the pandemic has materially ended. It would have been rational (or so my thinking went at the time) for investors to buy into Bitcoin in anticipation of this shift.
There are explicit contracts for such things (based on TIPS, so it's not some small shady market). Inflation expectations are still low, though materially higher than even in May:
In particular they do not go outside of the 3.0% range where we've been stuck for decades (the US CPI itself hasn't printed anything above 2.5% year-over-year since the 90s).
Inflation will come one day (one year? one decade?), but sure as hell isn't here yet.
I don't get it. tether sucks. If you hold tether it may turn into air. But your bitcoin is still bitcoin. Also, when tether is going down wouldn't you want to sell it thus creating pressure in btc/tether market and value of of tether/btc going up? It's always been clear to me that USD/BTC and USDT/BTC are two different markets. USDT is just another cryptocurrency. Many of them were scams and disappeared and many more will. Same with exchanges. It seems like describing somebody maliciously selling fake or paper gold and concluding that gold is bad.
Did you read the article? The author doesn't concluse that Bitcoin in itself is bad, they simply realized by themselves that most of the dollar value increase was caused by Tether, and they fear Tether eventually going down might be a black swan event causing prices to tumble. But 1 BTC = 1 BTC, yes.
Many value increases are irrational, whatever that means, I understand how it can be used to pump the price. I just don't understand how it takes bitcoin with it when collapsing.
OK, yes, that's a fair point. But it's not clear to me that pumping being taken away would be a bigger change than people trying to get out of USDT and buying BTC.
People are not buying BTC to get out of USDT, they're buying other stablecoins and tokens pegged to real world assets. The last week has seen a surge in the price of those tokens compared to USDT. I've made good money arbitraging the bouts of panic.
> But it's not clear to me that pumping being taken away would be a bigger change than people trying to get out of USDT and buying BTC
People trying to get out of USDT into BTC because the USDT:USD parity assumption collapses will boost BTC:USDT prices, but probably not enough to avoid dropping BTC:USD, because it would be less than the USDT:USD drop, is the idea.
How would you sell USDT? You’d buy on a BTC/USDT market. These markets aren’t unified—there are different markets for tether and backed USD. Who would be counterparty to a tether exchange?
Thise specific USDT pairings would crash. If they wanted USD (as they presumably do), they’d then crash the other stable coin or backed pairings.
Tether market cap is 24bil, Bitcoin market cap is 714bil. Its just 3%.
I think that Tether isn't inflating BTC that much. The institutions that buy BTC like PayPal, Square, JPMorgan have much bigger effect on Bitcoin than Tether.
That’s not quite how it’s gonna work. It doesn’t matter what the Tether market cap is. The BTC market cap is coins x price. If Tethers represent 70% of inflow and they disappear, price is gonna come down. Likely a lot more than 3%.
Tether will almost certainly collapse, and then you'll have a lot of bitcoin chasing very few dollars. There is likely to be a stampede for dollars, which becomes a vicious cycle deflating the price of Bitcoin - the liquidity is consumed (Bitfinex is printing Tether because there aren't enough dollars to go around at unbanked exchanges, afterall) at the same time the downward volatility dramatically increases the perception of Bitcoin's risk; market makers start heading for the door; the cost of liquidity becomes massive.
There's some magic number for the price of Bitcoin, and it's hard to say what it is, where the miners start to lose money. If it stays too cheap for too long, it puts pressure on the miners to either switch to other coins or get out of the game entirely.
Things could get very bad, very quick. The only reason I don't have a bearish position in Bitcoin is that I can't find a counterparty that a.) I can afford at my account size (eg not CME) and b.) that I'm confident will still be around after this crash.
There are some Defi options on Ethereum that could allow you to short BTC with a USDC [1] collateral, like dYdX [2].
You would need to keep a small amount of ETH to operate the smart contracts, which could fluctuate in dollar value, but even after a black swan event, there's no reason that this decentralized infrastructure would not still be running, allowing you to redeem the USDC to real dollars.
[1] Circle dollars, 1:1 backed stablecoin from a well regulated issuer.
I'm not really sure I understand this, neither finance nor crypto is my strong suit, but I think it's saying that most bitcoins are purchased with tether, and if the tethers are fake then that means most of the demand for bitcoin is fake. If the demand falls a lot, the price will too.
Not sure if I'm misunderstanding this though. It's hard for me to believe people buying and selling bitcoin wouldn't notice this somehow.
I don't believe any significant number of people buying Bitcoin are using Tether. Tether was aimed at the exchanges, institutional level investers, and day traders that wanted to move between dollars and crypto without creating taxable events (this loophole has since been closed). Its primary purpose was touted as allowing exchanges to move US dollars between themselves quickly and without using the banking systems directly.
Things may have changed in the last two or so years though, so maybe Tether's role radically changed.
Please pay taxes. Change the system instead of giving it reasons to put you into jail. I don't think very highly of people who brag about not paying taxes which they are due.
Please do your darndest to legally pay the least amount taxes possible and find every opportunity to change the system so taxes are lowered: you tax money will, in the vast majority of the cases, be wasted
Both opposites of this tax debate spectrum are flawed. Most important thing is to enjoy life. If you focus too much on avoiding taxes, or pay them too much, you are losing. Pay what you pay and only spend resources on tax planning if it makes sense.
I prefer to support Swedish's society and just pay my due taxes, thank you. The beast here is responsible for a lot of the quality of life we enjoy, public services included.
But please take into account that when you were born and raised in a socialist environment and properly brainwashed into believing it's the best thing on earth, it's kind of hard to imagine that there could be something better.
I was born and raised in a society similar to yours, and until I crawled out from under my rock to see the world, I held beliefs very similar to yours.
You need to get out of the box to understand its shape.
If you have (gotten out of the box) and then decided that the inside of that box is what you want & need, then I am a 100% with you.
In my case, living in a socialist society like Sweden at this stage in my life would be a living hell.
Can I ask where you choose to live right now that isn’t a socialist society or on the way to one? Genuine question because I am thinking of emigrating after this pandemic is over and that would definitely make my shortlist.
The point is, like a sheep on a farm, you're being milked and sheared by your government, like in most socialist countries.
Sure, like sheep on a farm, you're well tended to, but you basically live in a society where people exist to serve their government rather than the opposite.
That may not be your definition of the word "socialism".
Call it "collectivism" if that fits your definition better.
That won't change the fact that you're living in hell AFAIC.
Hell is a funny word for a place that has one of the greatest quality of life of any OECD country. Yes, their tax rates are high, but not vastly higher than one might pay in California. I'll say this for them, at least they pay for their spending. Sweden's national debt is 35% of GDP, while ours was over 100% even before Covid-19.
Basically, if sweden is 'tax and spend' we're 'spend and future financial crisis'. I know which country I'd rather live in long term if I did not have a life to uproot here in the US.
I surely don't want to enter into this discussion, it seems baseless and meritless. Talking about sheep in a farm being tended to while disregarding upsides, without leaving room to discuss different models of social contracts and trade-offs. And worse, while you conceal what is your vision of a good model for society.
There is a lot to unpack here and I surely don't want to keep going when the rhetorics is so loaded, calling others sheep and misusing terms won't lead to a healthy discussion.
The transition from the system described in the 19thC as “capitalism” to the modern mixed economy was an adoption of socialism (while it wasn't mostly adopted as a coherent program but instead a series compromises between different factions, as a deliberate program it would have been a form of what Marx described—and opposed—as “bourgeois socialism”. And the Nordic .model, including the form in Sweden, leans into some of the socialized elements more heavily than is typical, with notably strong social safety nets and public pensions.
How about paying your taxes and "doing your darndest" to change the system so that tax revenue is spent wisely for the benefit of the whole of your society?
Like talking about storming the capitol, plotting to evade taxes is all fun and games and may even work for years, until it goes "too far" and everyone gets arrested.
If you don't pay taxes, you're cheating the rest of us.
We in the west have extremely luxurious societies but this isn't cheap. When a few rich people cheat on their taxes, a large number of poor people suffer.
Not paying your taxes is theft from the rest of us.
Bitcoin is supposed to be a store of value, is it not? If most of this 'value' stored turns out not to be real, the implications for the price of Bitcoin are not good. If the value of USDT falls to nothing then USDT holders trying desperately to offload aren't going to create much demand for BTC, compared with what was being created when new USDT supposedly worth a dollar entered the system every day. And if the price of BTC falls, it isn't a very good store of value any more so people who have traded legitimately earned wealth for BTC have an even stronger incentive to sell. If 70% of gold's daily trading volume was down to orders based on fake gold securities, it would also be a very bad time to hold gold (but at least if you took a big enough loss you'd find someone that wanted it for reasons other than their belief about its ability to hold value)
It amazes me how Bitcoiners scream 'hyperinflation' every time the Fed prints more money (with the goal of increasing prices by 2% annually) and yet struggle to understand the relationship between Tether printing dollar-denominated crypto-purchasing vouchers (with the goal of increasing crypto prices by as much as possible) and the supposed dollar price of BTC
The argument basically is tether has been inflating the price of bitcoins. If tether collapses bitcoins will still be there but may trade at $3000/coin rather than $38000.
Comparing with gold it's like the price has been inflated by people buying it with forged dollar bills.
That said the author seems a bit new to this all with his shock at finding Bob is likely being scammed. Bitcoin has been linked with scams almost from the start, certainly since 2014 with MtGox. Things will go on in spite of the scams.
Why on Earth would $100 billion worth of Tether rushing for a conversion into anything else drag _down_ the price of BTC? Or any other coin for that matter?
Have you actually sat down and thought about this, even if 99% waited and cashed out over weeks, that 1% is still a huge injection into the ecosystem.
People have been shown time and time again that the money is there, the peg can hold, the underlying company is also a cryptoexchange that can print cash simply by existing and all haters have left is attaching their ego to this notion and clinging to the dream of it going bankrupt over night. And the more they are wrong the more they desperately cling to this idea.
Tether had $1B stolen from them when it was a significant % of their assets, along with the US govt taking other funds in the NYAG case and they easily survived, if not thrived.
These comments/stories on HN have been here for years and they don't age well, it's hilarious to watch.
You can all go short tether or bitcoin today for a fraction of a penny on the dollar, and yet, don't :/
Why not do it, you can hold a bitcoin future going short for the next year less than a coffee per / $1k, why not do that? Would surely make a great story.
> ” you can hold a bitcoin future going short for the next year less than a coffee per / $1k”
Genuinely curious about how could I do that. I am not that much into cryptocurrencies, so I appreciate if you have the time and will to be specific in the operationals. I do have a (currently empty) account at Kraken, if that helps.
Kraken has margin trading, which allows you to hold negative positions in BTC. However, this means you are borrowing the BTC that you're selling, and the interest on that is rather high (0.01% per 4 hours). You also need to keep EUR or USD as collateral in the account to cover potential losses when the price goes up.
> Why on Earth would $100 billion worth of Tether rushing for a conversion into anything else drag _down_ the price of BTC?
If USDT:USD collapses, BTC:USDT will naturally go up, but it's also quite likely that BTC:USD (whether direct or indirect) will go down, to the extent it has been inflated by artificially inflated USDT:USD.
> Why not do it, you can hold a bitcoin future going short for the next year less than a coffee per / $1k, why not do that?
Assuming you have enough collateral, you currently even get paid money to hold a short.
As to your general point, I'd avoid holding the view that a 7 or so years old business can't fail as any kind of general truth. I know many smart people who are extremely bullish on cryptocurrencies, with huge investments. None of them think Tether will not fail one day. Everyone is playing the current market as a bubble.
If the scheme described by the article really exists, then it represents a substantial fraction of the demand for BTC.
It's true that such a scheme collapsing would drive demand for BTC from USDT holders up. That's of course assuming they could still trade their USDT. Tether (the company) cancelled $30 million worth of coins stolen from them a few years back which suggests if the company was seized the ability to trade USDT could be disabled.
But it's also true that such a scheme collapsing would instantly drive demand for BTC from Tether (the company) to zero. If that demand really is almost 70% of all the demand for BTC then BTC's price should decline significantly.
> Why on Earth would $100 billion worth of Tether rushing for a conversion into anything else drag _down_ the price of BTC? Or any other coin for that matter?
Price in which terms? USD? USDT?
Suppose it turns out tether is a fraud. What will happen? Tether holders will try to sell it for USD or Bitcoin. High supply of tether will lead to higher BTC/USDT and higher USD/USDT rate. Those who managed to convert tether to BTC will likely try to convert BTC into USD. This will lead to relative over-supply of BTC versus USD and BTC/USD will decrease.
There's a very strong point to be made that shorts in a rigged market are not a good idea, because squeezing the shorts is easy for the money printers (who plausibly have visibility over the liquidation price points), whereas the odds of actually collecting in a black swan crash are slim to none.
Say you think Tether USD (USDT) is worthless and is being printed willy nilly to prop up the price of Bitcoin. As a corollary, you are basically forced to assume that large exchange owners are aware of this fact because quite simply there is no other way for fraud to happen at such a large scale without their knowledge, since exchanges KYC their customers and are aware of their balances and trade volumes.
So you find an exchange that will allow you to short the BTC/USD (not USDT) pair and take a position. The liquidation price of your short is known to the exchange operators. If your position is large enough to create a problem for the whole scheme, the exchange owners can inform the Tether printers of your liquidation price, which they can use to squeeze you out, because they know exactly how high the price has to be to trigger your margin call.
> The amount of money & electricty wasted to generate a BTC is otherwise unrelated to the price of BTC in dollars or other assets.
Isn't it _directly_ related? If I'm a miner and the BTC I'm mining doubles in value I can afford to spend 2x as much money on hardware/energy and still make a profit.
You've reversed the directionality: price drives mining activity, but mining activity doesn't determine the price. Miners spending more on hardware & energy won't produce more bitcoins (it just means the difficulty will increase and more CO2 will be released).
I'm saying the fact that you have to waste $10,000 worth of electricity calculating redundant hashes in order to make a bitcoin doesn't mean that bitcoin somehow contains $10k worth of "value" or that the cost of production sets a floor on the price.
People sometimes get confused about this, perhaps reasoning by way of analogy with real-world goods that will (typically) never be sold for less than the cost of their inputs, or they imagine some computerized form of the labor theory of value applies[0], but this is not true. The only factors determining the price of bitcoin are supply (fixed) and demand (driven by speculation).
The naivety of this post is just great. It's crypto conspiracy theorist Q, financial anti-vaxxer and monetary flat earth all rolled into one.
Sell everything my friend and never look back. Happy for your wins here. Enjoy your "life-changing" investment decision.
> This is a one-time-use account. I won’t be responding to messages or inquiries on this platform.
If you aren't willing to put your real name to it, guessing you're not that confident about it either and are just another market timer looking for easy kudos over the centruries of proclamations. Crypto is basically ground zero for the biggest flaseflagging and ubershill campaigns on the planet.
Without proving what you sold, this is a fairytale, and you know damn well you can cryptographically prove right now how much and when you held it.
Tether holds far more than your bank or many bluechips in backing, try not to forget that one.
"Tether holds far more than your bank or many bluechips in backing, try not to forget that one."
The author writes right there in the article why he thinks Tether is full of shit. He states that the bank they claim to be putting all their dollars in simply doesn't have that many dollars.
So you can now put your money where your mouth is and explain why he's mistaken about that.
Addeundum, some time later: dylkil has done it for you. Now there a commenter who actually comes armed with facts.
Devils advocate, (I think tether is B/S) but the Bahamas deposits sheet they mention wont include securities like TBills and Corporate Credit, which I expect Tether would hold as collateral...
Yes, three other markets accounting for a total of... $4 million daily volume. That's less than many random Uniswap tokens, and could consist entirely of some minimal market making. I've done stablecoin market making myself, it's not very profitable but the low inventory risk makes it attractive, as the ratio always trends back to 1:1.
USDT-USD markets are indeed marginal. however, implied USDT price using BTC as a cross shows USDT is valued pretty much at parity with the dollar by the market:
If people want to short bitcoin or tether, they should do so. However, I don't really get all the internet whining. If they're right they'll make a lot of money. I don't buy these concerned citizen FUD posts though, they reek of manipulation. If there's one thing I've learned over the last 25 years it's.. don't trust random people on the internet.
Taking a position and then publicizing the position and the thesis behind it is standard procedure everywhere in finance. It's a way of accelerating pricing-in of the information.
You can indeed just short an artificially inflated asset, but if the sham is only revealed long after you're insolvent, you lose your money.
BTW, your bull case for Bitcoin wasn't built from trusting random people on the internet?
Nope, that's why I'm so confident. The entire point of Bitcoin is to remove the need for trust and replace it with network consensus rules and proof-of-work, both of which you validate yourself. Since, to me, that's far superior to the current system - I just see it as an inevitable transition.
Of course Tethers are backed up, it's done in a novel and modern way of driving a garbage trucks full of small denomination dollars to a back alley in Bangkok by institutional investors.
This is nothing more than FUD designed to benefit a short position. The reason why exchanges like Binance and Bybit have their inflows from Tether... is because (as the author explains) they only take Tether!
Why do they only take Tether? Because US banking is incredibly expensive and a regulatory nightmare.
Why do people use Tether exchanges, over Coinbase? Not just because of leverage, but also because many do not AML/KYC, especially if you only deal with crypto. A LOT of people in the crypto community don't like to pay taxes, and we've known this from day one.
Many crypto enthusiasts also boycott "regulated" exchanges like Coinbase, because they shut down accounts if you use it to gamble on a sportsbook, or whatever their surveillance doesn't like.
So it should not be a surprise that many people in the crypto community, me being one of them, actually prefer to use Tether and Tether exchanges.
> Why do people use Tether exchanges, over Coinbase? Not just because of leverage, but also because many do not AML/KYC, especially if you only deal with crypto. A LOT of people in the crypto community don't like to pay taxes, and we've known this from day one.
I don't know if evading taxes is the main reason but it is definitely not the only one. Going through KYC is an embarrassing and demeaning experience, unless you like prancing in front of a camera.
It is also close to equivalent to just plastering your picture and ID all over the public Internet as that is exactly where they'll end up when your exchange of choice is eventually broken into.
Crypto today is pretty wild. Most of the crypto currencies are trash with good intentions or straightforward scam. On the other hand, the flaws make it a great opportunity for those who dare.
So, you are glad to see articles that support your viewpoint?
Don't you regret at all missing all the gains you have made along the years by not buying small amount of BTC? In the end the guy who wrote this article made quite good amount bu buying BTC low and selling high. Lets see how it ages.
Honestly I don't care about articles that support my skepticism, they largely bore me as well. What made this article and others like so amusing is the tremendous irony of demanding regulation, irony that the author seems completely oblivious to.
Do I regret missing out on all of the crypto gains I could have had? Honestly I don't really think about it that often and when I do it's largely because I work in tech and I'm often forced to work with people who won't shut up about it. But I lived through similar periods with the first dotcom bubble, and the housing market in the run up to the financial crisis. I don't like 'greater fool' investing as a strategy (but certainly some people have gotten very rich with it) so no I guess I don't regret it.
(One sidelong observation there are a lot more paper gains than realized gains. I've worked with a number of bitcoin millionaires. But if I filter the count to those who have > $1mm in USD, in a US domiciled bank, the number drops top zero. Who knows? Maybe it's adverse selection. Maybe the real winners aren't working anymore.)
Banks, which are essential to our economy, have 0% reserve requirements but this niche company that can crash to 0 without doing much harm to the economy should be forced to have 100% reserves? Who cares, just don't accept Tether in exchange for anything and you're good.
Really good article, recommended read for anyone interested in crypto.
For me, it's almost 100% aligned with what I've felt was going on with Tether in the last 2 years.
Also, it sort of crystallized an answer to a question I've had about Binance for quite a while: how did they manage to get so big, so fast.
Answer: easy, they never had to establish proper on and off ramps to the traditional banking system and lured customers with unreasonable leveraged offers (which BTW is another Tether-related scam in itself: if you are an exchange with a shit ton of USDT, you can manipulate the price up and down, and trigger artificial margin calls whenever you damn please).
The real interesting question is though: what will happen when (not if) Tether explodes. There will be a sudden huge demand for exiting from USDT, and the only way looks like buying BTC on semi or fully fraudulent unbanked exchanges (good luck with that).
This will also trigger a big price unbalance between exchanges, and it remains to be seen if arbitrage channels will be able to weather the storm and if so for how long.
If you hold USDT, better get out quick unless you want to be left holding the bag.
If you hold BTC (as in: for real, in your own wallet, not on some shady exchange, not your keys not your coins), it's likely the BTC ecosystem is going to undergo a very large "event". Up or down, who knows.
If you hold BTC on an exchange, especially a shady one with 100x leverage type offerings, get your coins out of there ASAP before you get BTC-E'd [1]
> it sort of crystallized an answer to a question I've had about Binance for quite a while: how did they manage to get so big, so fast. ...
No, Binance didn't get big because of Tether or leverage. It was already eating most of the crypto-only exchanges volume when altcoins were almost exclusively paired with BTC and before it acquired its perpetual futures business.
The main reason they managed to attract so many users is flamboyant altcoin pump and dumps orchestrated with ICO teams and Chinese whales, and pioneering exchange coins with the securities/utility token mash-up called BNB. Users came to chase the pumps, and stayed when they were invested in the platform itself.
Binance's thriving in its later phase even as Coinbase ramped up its altcoin listings can certainly be attributed to Tether though.
Also Binance is quite simply a better exchange. It works flawlessly even when the market is hot. The quality of what they've developed and the speed at which they did it makes the average silicon valley team look like 7 year olds.
Most of what they developed is customization over white label solutions (that's how the main exchange was started), and acquisitions. The UI is a convoluted mash-up of different systems. Try using their margin trading. They're spending very little on in-house software development compared to their revenue and the average SV company of that size, and it shows.
> It works flawlessly even when the market is hot.
That's factually false. It holds up better than Coinbase sure, that's not hard, but it very frequently gets overwhelmed during volume spikes. The web UI and the various price feeds often fall behind. The orderbook feed falls out of sync even during normal usage hours. The more robust part of their stack, the trading API, rarely goes down though, I'll give you that.
I guess your comment makes my point about BNB. It's a great way to keep customers loyal and engaged. I do agree that overall it is the best cryptocurrency exchange, but let's not use HN as a shilling avenue.
Sure, praise for their business execution is warranted. It might even be allocating so little resources to the surface product (UI/UX) that's allowed them to move so fast in other more important avenues like liquidity, diversity of offerings and customer support.
The bar is low with Coinbase, and I was replying to a specific unwarranted praise about Binance, already mentioning that it's indeed arguably the best exchange overall.
I think you can attribute a lot to the founders background. Previously he'd built trading systems for the Tokyo stock exchange, Bloomberg and
>In 2005, he moved to Shanghai where he founded Fusion Systems, known for "some of the fastest high-frequency trading systems for brokers." (wikipedia)
Sure would be nice if he applied his supposed trading systems expertise to Binance... quite ironic that his current exchange is one of the slowest on the market: https://latency.azidyn.com/
Author here. I really appreciate your kind words about the post - thank you!
I'm also broadly in agreement with your conclusions as to what this means for a crypto trader or holder. I've zeroed my net exposure to this ecosystem myself, both in anticipation for such an event, and out of recognition that I frankly understand it far less well than I originally thought.
I am not a Bitcoin holder, but Ethereum. I zeroed all my Ethereum except the ones locked due to staking (32 ETH, but I bought them when they were $600) because of these Tether news lately. I will wait for more clarity before jumping back in.
It is kinda sad that in this technology there are so many frauds like that.
>I will wait for more clarity before jumping back in.
Probably wise given how correlated ETH and BTC prices are.
>It is kinda sad that in this technology there are so many frauds like that.
It is, but it is also unavoidable.
As the author correctly points at towards the end, many of the properties of cryptos (high liquidity, non-reversible, pseudo-anonymous), while very useful to legitimate users, are a wet dream for crooks.
As a matter of fact, Bitcoin has been used to scam people for its entire existence, e.g.[1][2], sometimes even in new and innovative ways.
There is one aspect of Bitcoin that many people entirely overlook, especially newcomers: [3]
Long ago I spent $100 on a graphics card, and mined 1 Bitcoin over the course of a year... then lost it on MtGox... that was a cheap lesson compared to what appears set to happen.
Thanks for taking the time and effort to put this together. I'm sure it'll help some people avoid a costly lesson.
I remember reading the first announcement of Bitcoin on Slashdot over a decade ago, and every time I begin to feel regret over not having downloaded it then, I realise that I would almost certainly have lost anything I had from one of a thousand ways its possible to lose your coins - MtGox being a major one in the early days!
It is not “doomsday machine”, it is “Tuesday”. Yes, Bitcoin is volatile, and crypto markets are manipulated (just like all other markets, e.g. tech stocks with Softbank-originated program trading right now).
If tomorrow Bitcoin will cost $10000, nobody will be surprised. Neither if it will be $70000. We are not building crypto systems for speculation.
If you're really interested in Bitcoin and the crypto space, paying attention to the price should only be relevant because it is volatile and slows down adoption.
So if I understand this correctly, you can go to one of these pyramid scheme exchanges, tank up on highly leveraged tethers, and then go sell them on Kraken. Do this often enough and you will drain the resources of the pyramid scheme, causing it to collapse. So you make a profit and provide a social good all on one smooth move.
Well, if I understand the OP correctly, it sounds like tethers are basically being printed and sold cheap in return for real money, so lots of people think they have a profit because they have more tethers than the dollars they started with. So if you can get in to that situation and then quickly sell the tethers before the whole thing collapses then you should be in the money.
OTOH if that isn't possible then the allegation that this whole thing is a pyramid scheme fails.
Where? Find a place that consistently sells tether cheap. If anything, the lack of this place is a sign of poor research base for the original article.
They mention that some exchanges give tether "prises" sometimes, on some occasions, to a select number of users. I don't see how that is so bad, and neither do I see how you could consistently profit from that. Those incentives are likely to be once per user, or once per referred customer, etc. There are likely protections in the form of "you have to trade for this much in order to realize the total prise amount". I don't see how this is any different from bonuses that many online casinos give out, and no one takes that as a sign that a given casino that does this is insolvent.
Good point, for those tethers to have that big an influence on the market, they need to get into the hands of real people buying tether with real money somehow.
According to the article it looks like this
1. Person buys btc with usd on coinbase or equivalent
2. Moves btc to shady exchange with tether promotions
Those promotions need to be _huge_ in for those newly minted tethers to get into the hands of real people trading.
I looked at the site with promotions linked by the article, and the front page features a couple of missions that give 50 USDT total for doing things like "join our telegram group", "set up a notification on our app".
You can do this indeed but that'll cost you money as USDT is valued slightly below 1 USD, and you will incur slippage the larger your amount is. The best way to withdraw large amounts of Tether's to USD is through their platform itself, for a fixed ~$1000 fee.
>But during the same period, total issued Tethers increased by almost $5.4 billion — going from $4.6B to $10B
>The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to >back the Tethers that were floating around in the crypto market.
Doesn't match up with whats shown here[1], Bahamas banks are holding 110bn in customer deposits.
Upvoted for coming armed with an actual fact related to the article, disagreeing with the author's premise based on some actual evidence. Might be right, might be wrong, but it's something other than just more opinion. Wish I could upvote more than once.
I'd like to point out for you to refrain commenting in this style, it reeks of reddit-ism. Also, another comment [1] clarified why the original commenter's analysis might be flawed.
Those numbers are for all bank offices located in the Bahamas, most of which are foreign bank branches. The numbers in the row "By type of bank - Domestic banks" [1] appear consistent with the article.
Author here; this is the correct answer. The larger number refers to all banks. Deltec is known to be a domestic bank, so we can use the smaller number to get tighter uncertainty bounds on its currency flows.
1. He's definitively bad at investing. He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
2. He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
3. He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
4.USDT is now also used outside of the crypto-market. Not because it is great, but because of the practicality. This offshore unregulated market of USD is worth in the $ trillions. USDT having a market cap of a dozen billions is really peanuts. That being said, I'd be more interested in an investigative journalism on how Tether has succeeded in moving such amounts of money while avoiding all the KYC bonanza a regular joe (or business) has to go through.
> For example, most of the volume in USDT is faked by the exchanges.
I agree this volume cannot be trusted. Much like the asian volume in 2017 turned out to be mostly fake. I find it hard to believe that Binance got so big so fast.
> He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
This is perhaps a reasonable inference to draw based only on the information in the article, but it is incorrect. Without going into too much detail, the missing context is that I have effective long exposure to certain markets through my ownership of founder stock in a startup that operates in those markets. And while I place a high expectation value on that stock, it's also illiquid and can't be easily hedged. For reasons I didn't go into in the piece, I believed Bitcoin would also serve as a partial hedge for that market exposure, which justified a higher allocation than one might naively expect.
(I'll also observe that portfolio rebalancing isn't the right decision in all situations. Startup founders rationally concentrate their net worths into their companies, which is justified by their overwhelming informational advantage.)
> He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
I agree with the first sentence. I would strongly dispute the second. It's precisely because I don't think I can predict what will happen next that I've zeroed my exposure to this entire ecosystem.
> He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
I'm aware of these claims — there are rumors of wash trading by the big unbanked exchanges that I consider quite credible. I didn't include those in the piece because I wasn't able to find confirmatory evidence in the time I'd allocated to research it. I would be extremely interested if you could share any evidence you may have collected about these claims.
I like your style. Off topic question: why are you so absolute in your investment decisions? Can’t predict what happens so you totally exit? Thought you had figured out some inflation dynamics so you all-in BTC?
I’ve lately decided I need to be more moderate in my investing to avoid quagmires of conflicted indecision.
I think I agree with most of your points. I actually wrote an article about Tether in 2018 on a major investment site.
I believe Tether is organized crime and would love to see a deep investigation into the lifestyle and finances of everyone involved.
Thing is, right now, we know that more bitcoin are being purchased with REAL dollars than are being minted. So, the market has support. Yesterday, Grayscale bought 5132 bitcoin. They hold those in cold storage, so, they really bought them. I'm sure paypal, cashapp, square, also bought some.
But NO ONE in the industry has any motivation to question Tether.
The question becomes, how much bitcoin has been purchased by people that might sell it if Tether implodes. I am not sure it is a significant enough amount. Perhaps.
The current chart for bitcoin is extremely bullish. I would guess it moves up from here.
Article seems mostly accurate but there's a mistake in understanding about the Whale Alert tweets
> What’s more, the supposed USD inputs (e.g., 401,431,056 USD in the top left transaction) are giving perfectly round Tether outputs (e.g., 400,000,000 USDT in the same transaction) in every block — regardless of the prevailing exchange rate or anything else.
Whale Alert uses exchange rates to convert currencies in the post. The "USD inputs" are simply the USDT that was minted converted using a USD/USDT exchange price (I'm not sure which one)
Whale Alert has also hard-coded USD/USDC to 1:1, which is why the coinbase pro minting Tweets match exactly
The author implies that the recent growth in tether's market cap is an indication of an incoming exit scam.
A cursory glance at Coinbase's USDC's market cap [1] shows that it too is growing at almost exactly the same pace as tether's [2]. I think most players in this market would agree that Coinbase, for all of it's failings, is unlikely to be planning an exit scam at this point.
It doesn't disprove the whole thesis, and some elements of it might have merit, but at least one element of it seems weak to me.
Check the volume for USDC/USDT. It has been increasing the last couple of weeks.
So one could argue that people are trading largely unbacked USDT for backed and audited USDC. Which increases the demand for USDC and the USDC minting.
No, it doesn’t. In fact it’s exactly what you’d expect if Tether is fraudulent. Stablecoins are a great way to transact in dollars that you otherwise wouldn’t be able to, for instance the proceeds of illegal activity. The author notes the exact mechanism: print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC.
You would expect them to increase in lock step if this is happening. If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.
> print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC.
The steps you described don't result in new USDC being minted. That happens only when people send dollars to Coinbase and change them to USDC.
> If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.
No, USDT has been around for a lot longer and lots of very liquid trading pairs are based on it. So if you need to buy lots of crypto currency you might need tethers so you can buy on an exchange with a liquid trading pair (BTC/USDT on Binance being the most liquid trading pair).
I think it does. People send USD to Coinbase to buy Bitcoin. Coinbase maintains the stable value of USDC by creating new USDC and selling it to people for BTC. The cash to back USDC comes from people depositing USD to buy BTC.
You can think of it virtually as three balanced flows:
> Coinbase maintains the stable value of USDC by creating new USDC and selling it to people for BTC.
If tou want USDC you can simply change your dollars on coinbase. No need for them to use their own funds to maintain a stable price - there's no usdc/usd market on coinbase.
Author here; I agree this is a valid objection and that one should be very cautious when extrapolating cause-effect relationships. Systems like these also often have multiple embedded feedback loops in them, which can make it impossible to identify a single cause once the flywheel gets going.
It's when you combine the USDT/BTC correlation with the available evidence for Tether's unbacked issuance that the problem becomes clearer, in my view. When issuance is unbacked, it can be decoupled from real demand — and that's a degree of freedom that allows Tethers to be injected arbitrarily into the system. Coinbase's stablecoin is backed by audited reserves, so USDC is constrained by demand — making it more plausible that USDT is the causal factor rather than USDC.
Thanks for this article, I've gotten out of crypto for the moment for the exact same reason.
The probability that something fishy is going on which would trigger a panic-sale when it's discovered is too high until we know more about the court case against Tether, imho.
Though all the people insisting on calling this FUD do make me wonder whether I'm seeing things or this is an "emperor's new clothes" situation.
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[ 3.2 ms ] story [ 280 ms ] threadhttps://www.deltecbank.com/2021/01/14/a-covid-year-in-review...
https://www.coindesk.com/tethers-bank-says-it-invests-custom...
https://twitter.com/patio11/status/1349873798078558209
The next weeks/months are going to be fascinating to watch, as US regulators and invested institutions fight to both regulate and protect their crypto investments. Maintaining the inflated cryptocurrency valuations propped up by Tether while simultaneously removing it from the game before too many eyes set on it, will surely require subtle maneuvering.
Ultimately I do suspect OP indeed, sold early, as the game theory mechanics strongly favor just participating in the Ponzi rather than trying to bring it down, especially when this has the potential to be the one last great bubble before a major recession.
Eh, I would never bet 100% of my investment in a market based on knowledge I obtained myself, there's no no noo way I can see the entire picture.
Crypto Anonymous, you sold extremely early, I'm sorry.
https://digitalik.net/btc/
Yikes.
Just to make it clear: there's absolutely no broad inflation almost everywhere in the world, certainly not in the United States. It may still come, but inflation is not why Bitcoin is on such a tear. Look at CPI or PPI of you don't believe me.
Although this does remind me of the Green Lumber Trader story from Taleb. Congrats on the trade!
(I am only half-joking here, the point is that broad inflation is much much more important than some bull market in this or that asset class)
On a more serious note a lot of commodities are looking really bullish, including some foodstuffs, and that's obviously not good news ...
Real estate bubble -> High deposits for house purchases -> High rents -> Effective inflation
Most governments don't include real estate (or even rent payments) in their inflation calculations to keep it artificially low.
Housing is > 40% of the US CPI:
https://www.bls.gov/cpi/tables/relative-importance/2019.pdf
If your measuring stick is fiat, then sure there isn't any inflation.
However, you're using a measuring stick whose length isn't constant.
If you use Gold as your measuring stick, then things change.
If you user Bitcoin as your measuring stick, things change dramatically.
If you use real estate - can you still say there is no inflation ?
Now if you swap (in the denominator) the USD for either gold or bitcoin you'll conclude we've been in a severe deflation in 2020.
(I do not agree with the above, I am just fixing basic mistakes in your reasoning)
If you would like your basket of things (the numerator) to consist solely of Bitcoin or gold then go ahead but you may as well put baseball collectible cards there, as it doesn't relate to people's consumption needs.
But yes, they don't go away, such things actually cause deflation because they prevent recession-cleansing of inefficient organizations, keep property prices high, cripple people and organizations with debt, ...
https://fred.stlouisfed.org/series/T5YIFR
In particular they do not go outside of the 3.0% range where we've been stuck for decades (the US CPI itself hasn't printed anything above 2.5% year-over-year since the 90s).
Inflation will come one day (one year? one decade?), but sure as hell isn't here yet.
Also we've been there (mtgox's willy etc). I don't think bitcoin will be much less volatile any time soon. https://www.youtube.com/watch?v=XbZ8zDpX2Mg
People trying to get out of USDT into BTC because the USDT:USD parity assumption collapses will boost BTC:USDT prices, but probably not enough to avoid dropping BTC:USD, because it would be less than the USDT:USD drop, is the idea.
Thise specific USDT pairings would crash. If they wanted USD (as they presumably do), they’d then crash the other stable coin or backed pairings.
In the same way that there's no obvious ceiling to its value, if a lot of people try to get out of it at once, there's no obvious floor either.
Basically the market cap of BTC is not relevant here, but rather the daily volume.
Well, it will be an interesting week for sure.
There's some magic number for the price of Bitcoin, and it's hard to say what it is, where the miners start to lose money. If it stays too cheap for too long, it puts pressure on the miners to either switch to other coins or get out of the game entirely.
Things could get very bad, very quick. The only reason I don't have a bearish position in Bitcoin is that I can't find a counterparty that a.) I can afford at my account size (eg not CME) and b.) that I'm confident will still be around after this crash.
Stay cautious. Happy trading.
You would need to keep a small amount of ETH to operate the smart contracts, which could fluctuate in dollar value, but even after a black swan event, there's no reason that this decentralized infrastructure would not still be running, allowing you to redeem the USDC to real dollars.
[1] Circle dollars, 1:1 backed stablecoin from a well regulated issuer.
[2] https://trade.dydx.exchange/perpetual/BTC-USD
Not sure if I'm misunderstanding this though. It's hard for me to believe people buying and selling bitcoin wouldn't notice this somehow.
Things may have changed in the last two or so years though, so maybe Tether's role radically changed.
This allows you to trade while minimising your exposure to the taxman, something that many people in crypto value.
Of course, there is the calculated risk of Tether being seized, but that's part of doing business.
Bitcoin itself was born out of active rebellion with the existing financial system, and depending on who you ask, rebellion of the state itself.
Go to a bitcoin meetup that's a few drinks in, and ask how many people pay taxes ;)
Stop feeding the beast.
Starve it every opportunity you have.
But please take into account that when you were born and raised in a socialist environment and properly brainwashed into believing it's the best thing on earth, it's kind of hard to imagine that there could be something better.
I was born and raised in a society similar to yours, and until I crawled out from under my rock to see the world, I held beliefs very similar to yours.
You need to get out of the box to understand its shape.
If you have (gotten out of the box) and then decided that the inside of that box is what you want & need, then I am a 100% with you.
In my case, living in a socialist society like Sweden at this stage in my life would be a living hell.
So the two core assumptions of your comment are dead in the water.
Say you make the yearly local equivalent of 150k USD, what is your income tax rate in Sweden?
Sure, like sheep on a farm, you're well tended to, but you basically live in a society where people exist to serve their government rather than the opposite.
That may not be your definition of the word "socialism".
Call it "collectivism" if that fits your definition better.
That won't change the fact that you're living in hell AFAIC.
Basically, if sweden is 'tax and spend' we're 'spend and future financial crisis'. I know which country I'd rather live in long term if I did not have a life to uproot here in the US.
There is a lot to unpack here and I surely don't want to keep going when the rhetorics is so loaded, calling others sheep and misusing terms won't lead to a healthy discussion.
The transition from the system described in the 19thC as “capitalism” to the modern mixed economy was an adoption of socialism (while it wasn't mostly adopted as a coherent program but instead a series compromises between different factions, as a deliberate program it would have been a form of what Marx described—and opposed—as “bourgeois socialism”. And the Nordic .model, including the form in Sweden, leans into some of the socialized elements more heavily than is typical, with notably strong social safety nets and public pensions.
There’s a lot I like about the state! Yes, I admit it has many problems and frustrations.
But given we moved *away from the gold-standard, what is different now that makes it wise to accept a fixed money supply?
We in the west have extremely luxurious societies but this isn't cheap. When a few rich people cheat on their taxes, a large number of poor people suffer.
Not paying your taxes is theft from the rest of us.
It amazes me how Bitcoiners scream 'hyperinflation' every time the Fed prints more money (with the goal of increasing prices by 2% annually) and yet struggle to understand the relationship between Tether printing dollar-denominated crypto-purchasing vouchers (with the goal of increasing crypto prices by as much as possible) and the supposed dollar price of BTC
Comparing with gold it's like the price has been inflated by people buying it with forged dollar bills.
That said the author seems a bit new to this all with his shock at finding Bob is likely being scammed. Bitcoin has been linked with scams almost from the start, certainly since 2014 with MtGox. Things will go on in spite of the scams.
Have you actually sat down and thought about this, even if 99% waited and cashed out over weeks, that 1% is still a huge injection into the ecosystem.
People have been shown time and time again that the money is there, the peg can hold, the underlying company is also a cryptoexchange that can print cash simply by existing and all haters have left is attaching their ego to this notion and clinging to the dream of it going bankrupt over night. And the more they are wrong the more they desperately cling to this idea.
Tether had $1B stolen from them when it was a significant % of their assets, along with the US govt taking other funds in the NYAG case and they easily survived, if not thrived.
These comments/stories on HN have been here for years and they don't age well, it's hilarious to watch.
You can all go short tether or bitcoin today for a fraction of a penny on the dollar, and yet, don't :/
Why not do it, you can hold a bitcoin future going short for the next year less than a coffee per / $1k, why not do that? Would surely make a great story.
Genuinely curious about how could I do that. I am not that much into cryptocurrencies, so I appreciate if you have the time and will to be specific in the operationals. I do have a (currently empty) account at Kraken, if that helps.
How can I short BTC?
If USDT:USD collapses, BTC:USDT will naturally go up, but it's also quite likely that BTC:USD (whether direct or indirect) will go down, to the extent it has been inflated by artificially inflated USDT:USD.
Assuming you have enough collateral, you currently even get paid money to hold a short.
As to your general point, I'd avoid holding the view that a 7 or so years old business can't fail as any kind of general truth. I know many smart people who are extremely bullish on cryptocurrencies, with huge investments. None of them think Tether will not fail one day. Everyone is playing the current market as a bubble.
Price in which terms? USD? USDT?
Suppose it turns out tether is a fraud. What will happen? Tether holders will try to sell it for USD or Bitcoin. High supply of tether will lead to higher BTC/USDT and higher USD/USDT rate. Those who managed to convert tether to BTC will likely try to convert BTC into USD. This will lead to relative over-supply of BTC versus USD and BTC/USD will decrease.
So you find an exchange that will allow you to short the BTC/USD (not USDT) pair and take a position. The liquidation price of your short is known to the exchange operators. If your position is large enough to create a problem for the whole scheme, the exchange owners can inform the Tether printers of your liquidation price, which they can use to squeeze you out, because they know exactly how high the price has to be to trigger your margin call.
I shorted tether one time, on Kraken, and it was horrendously expensive, like 25% per annum. Do you know where it can be done cheaply?
Slightly positive predicted funding at the moment, which means you would get paid for shorting.
If market craters and the counter party to your short disappears, where are you going? The SEC? Finra?
Honestly, you really have no idea.....
The amount of money & electricty wasted to generate a BTC is otherwise unrelated to the price of BTC in dollars or other assets.
Isn't it _directly_ related? If I'm a miner and the BTC I'm mining doubles in value I can afford to spend 2x as much money on hardware/energy and still make a profit.
I'm saying the fact that you have to waste $10,000 worth of electricity calculating redundant hashes in order to make a bitcoin doesn't mean that bitcoin somehow contains $10k worth of "value" or that the cost of production sets a floor on the price.
People sometimes get confused about this, perhaps reasoning by way of analogy with real-world goods that will (typically) never be sold for less than the cost of their inputs, or they imagine some computerized form of the labor theory of value applies[0], but this is not true. The only factors determining the price of bitcoin are supply (fixed) and demand (driven by speculation).
[0] https://en.wikipedia.org/wiki/Labor_theory_of_value
It will only create pressure on exchanges that allow you to actually sell USDT for BTC.
These will unfortunately be the same one that will likely go the MTGox route the quickest, leaving you a bag of virtual BTC that you can't withdraw.
Not your keys, not your coins, and doubly so for USDT.
Sell everything my friend and never look back. Happy for your wins here. Enjoy your "life-changing" investment decision.
> This is a one-time-use account. I won’t be responding to messages or inquiries on this platform.
If you aren't willing to put your real name to it, guessing you're not that confident about it either and are just another market timer looking for easy kudos over the centruries of proclamations. Crypto is basically ground zero for the biggest flaseflagging and ubershill campaigns on the planet.
Without proving what you sold, this is a fairytale, and you know damn well you can cryptographically prove right now how much and when you held it.
Tether holds far more than your bank or many bluechips in backing, try not to forget that one.
The author writes right there in the article why he thinks Tether is full of shit. He states that the bank they claim to be putting all their dollars in simply doesn't have that many dollars.
So you can now put your money where your mouth is and explain why he's mistaken about that.
Addeundum, some time later: dylkil has done it for you. Now there a commenter who actually comes armed with facts.
https://www.tradingview.com/symbols/spread/BINANCE%3ABTCUSDT...
You can indeed just short an artificially inflated asset, but if the sham is only revealed long after you're insolvent, you lose your money.
BTW, your bull case for Bitcoin wasn't built from trusting random people on the internet?
Why do they only take Tether? Because US banking is incredibly expensive and a regulatory nightmare.
Why do people use Tether exchanges, over Coinbase? Not just because of leverage, but also because many do not AML/KYC, especially if you only deal with crypto. A LOT of people in the crypto community don't like to pay taxes, and we've known this from day one.
Many crypto enthusiasts also boycott "regulated" exchanges like Coinbase, because they shut down accounts if you use it to gamble on a sportsbook, or whatever their surveillance doesn't like.
So it should not be a surprise that many people in the crypto community, me being one of them, actually prefer to use Tether and Tether exchanges.
Care to deconstruct it?
I don't know if evading taxes is the main reason but it is definitely not the only one. Going through KYC is an embarrassing and demeaning experience, unless you like prancing in front of a camera.
It is also close to equivalent to just plastering your picture and ID all over the public Internet as that is exactly where they'll end up when your exchange of choice is eventually broken into.
Just another gift from the anointed ones.
Or when they had some funds seized and loaned funds between Bitfinex and Tether, breaking the 1:1 peg?
> The US Treasury should enforce 100% reserve requirements on all USD-pegged crypto stablecoins, with mandatory audits.
Laughter is really the best way to start my day.
Don't you regret at all missing all the gains you have made along the years by not buying small amount of BTC? In the end the guy who wrote this article made quite good amount bu buying BTC low and selling high. Lets see how it ages.
Do I regret missing out on all of the crypto gains I could have had? Honestly I don't really think about it that often and when I do it's largely because I work in tech and I'm often forced to work with people who won't shut up about it. But I lived through similar periods with the first dotcom bubble, and the housing market in the run up to the financial crisis. I don't like 'greater fool' investing as a strategy (but certainly some people have gotten very rich with it) so no I guess I don't regret it.
(One sidelong observation there are a lot more paper gains than realized gains. I've worked with a number of bitcoin millionaires. But if I filter the count to those who have > $1mm in USD, in a US domiciled bank, the number drops top zero. Who knows? Maybe it's adverse selection. Maybe the real winners aren't working anymore.)
Not all bitcoin enthusiasts are anarcho-capitalist extremists.
Banks, which are essential to our economy, have 0% reserve requirements but this niche company that can crash to 0 without doing much harm to the economy should be forced to have 100% reserves? Who cares, just don't accept Tether in exchange for anything and you're good.
For me, it's almost 100% aligned with what I've felt was going on with Tether in the last 2 years.
Also, it sort of crystallized an answer to a question I've had about Binance for quite a while: how did they manage to get so big, so fast.
Answer: easy, they never had to establish proper on and off ramps to the traditional banking system and lured customers with unreasonable leveraged offers (which BTW is another Tether-related scam in itself: if you are an exchange with a shit ton of USDT, you can manipulate the price up and down, and trigger artificial margin calls whenever you damn please).
The real interesting question is though: what will happen when (not if) Tether explodes. There will be a sudden huge demand for exiting from USDT, and the only way looks like buying BTC on semi or fully fraudulent unbanked exchanges (good luck with that).
This will also trigger a big price unbalance between exchanges, and it remains to be seen if arbitrage channels will be able to weather the storm and if so for how long.
If you hold USDT, better get out quick unless you want to be left holding the bag.
If you hold BTC (as in: for real, in your own wallet, not on some shady exchange, not your keys not your coins), it's likely the BTC ecosystem is going to undergo a very large "event". Up or down, who knows.
If you hold BTC on an exchange, especially a shady one with 100x leverage type offerings, get your coins out of there ASAP before you get BTC-E'd [1]
[1]: https://en.wikipedia.org/wiki/BTC-e
This seems to be one constant of BTC: "events" which you might expect to have a negative effect on the price often don't.
No, Binance didn't get big because of Tether or leverage. It was already eating most of the crypto-only exchanges volume when altcoins were almost exclusively paired with BTC and before it acquired its perpetual futures business.
The main reason they managed to attract so many users is flamboyant altcoin pump and dumps orchestrated with ICO teams and Chinese whales, and pioneering exchange coins with the securities/utility token mash-up called BNB. Users came to chase the pumps, and stayed when they were invested in the platform itself.
Binance's thriving in its later phase even as Coinbase ramped up its altcoin listings can certainly be attributed to Tether though.
> It works flawlessly even when the market is hot.
That's factually false. It holds up better than Coinbase sure, that's not hard, but it very frequently gets overwhelmed during volume spikes. The web UI and the various price feeds often fall behind. The orderbook feed falls out of sync even during normal usage hours. The more robust part of their stack, the trading API, rarely goes down though, I'll give you that.
I guess your comment makes my point about BNB. It's a great way to keep customers loyal and engaged. I do agree that overall it is the best cryptocurrency exchange, but let's not use HN as a shilling avenue.
2. I have had way less problems with Binance than Coinbase, so I am a happy Binance customer.
>In 2005, he moved to Shanghai where he founded Fusion Systems, known for "some of the fastest high-frequency trading systems for brokers." (wikipedia)
He presumably knew his stuff.
To be fair there were other exchanges that tried this 'invest in the house' gambit, but Binance made it stick.
I'm also broadly in agreement with your conclusions as to what this means for a crypto trader or holder. I've zeroed my net exposure to this ecosystem myself, both in anticipation for such an event, and out of recognition that I frankly understand it far less well than I originally thought.
It is kinda sad that in this technology there are so many frauds like that.
Probably wise given how correlated ETH and BTC prices are.
>It is kinda sad that in this technology there are so many frauds like that.
It is, but it is also unavoidable.
As the author correctly points at towards the end, many of the properties of cryptos (high liquidity, non-reversible, pseudo-anonymous), while very useful to legitimate users, are a wet dream for crooks.
As a matter of fact, Bitcoin has been used to scam people for its entire existence, e.g.[1][2], sometimes even in new and innovative ways.
There is one aspect of Bitcoin that many people entirely overlook, especially newcomers: [3]
[1] https://en.bitcoin.it/wiki/Trendon_Shavers
[2] https://archive.is/PZdxu
[3] http://trilema.com/2013/the-story-of-pointless-and-witless/
Thanks for taking the time and effort to put this together. I'm sure it'll help some people avoid a costly lesson.
If tomorrow Bitcoin will cost $10000, nobody will be surprised. Neither if it will be $70000. We are not building crypto systems for speculation.
If you're really interested in Bitcoin and the crypto space, paying attention to the price should only be relevant because it is volatile and slows down adoption.
Its absolute value is essentially boring.
Have I got that right?
OTOH if that isn't possible then the allegation that this whole thing is a pyramid scheme fails.
Where? Find a place that consistently sells tether cheap. If anything, the lack of this place is a sign of poor research base for the original article.
They mention that some exchanges give tether "prises" sometimes, on some occasions, to a select number of users. I don't see how that is so bad, and neither do I see how you could consistently profit from that. Those incentives are likely to be once per user, or once per referred customer, etc. There are likely protections in the form of "you have to trade for this much in order to realize the total prise amount". I don't see how this is any different from bonuses that many online casinos give out, and no one takes that as a sign that a given casino that does this is insolvent.
According to the article it looks like this
1. Person buys btc with usd on coinbase or equivalent
2. Moves btc to shady exchange with tether promotions
Those promotions need to be _huge_ in for those newly minted tethers to get into the hands of real people trading.
I looked at the site with promotions linked by the article, and the front page features a couple of missions that give 50 USDT total for doing things like "join our telegram group", "set up a notification on our app".
>The implication was shocking: there weren’t nearly enough dollars in all the domestic banks in the Bahamas to >back the Tethers that were floating around in the crypto market.
Doesn't match up with whats shown here[1], Bahamas banks are holding 110bn in customer deposits.
[1]https://stats.bis.org/statx/srs/tseries/LBS_D_PUB/Q:S:L:A:US...
[1] https://news.ycombinator.com/item?id=25789949
[1] https://stats.bis.org/statx/srs/table/A5?c=BS&m=S&p=20202&o=...
1. He's definitively bad at investing. He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
2. He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
3. He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
4.USDT is now also used outside of the crypto-market. Not because it is great, but because of the practicality. This offshore unregulated market of USD is worth in the $ trillions. USDT having a market cap of a dozen billions is really peanuts. That being said, I'd be more interested in an investigative journalism on how Tether has succeeded in moving such amounts of money while avoiding all the KYC bonanza a regular joe (or business) has to go through.
I agree this volume cannot be trusted. Much like the asian volume in 2017 turned out to be mostly fake. I find it hard to believe that Binance got so big so fast.
> He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.
This is perhaps a reasonable inference to draw based only on the information in the article, but it is incorrect. Without going into too much detail, the missing context is that I have effective long exposure to certain markets through my ownership of founder stock in a startup that operates in those markets. And while I place a high expectation value on that stock, it's also illiquid and can't be easily hedged. For reasons I didn't go into in the piece, I believed Bitcoin would also serve as a partial hedge for that market exposure, which justified a higher allocation than one might naively expect.
(I'll also observe that portfolio rebalancing isn't the right decision in all situations. Startup founders rationally concentrate their net worths into their companies, which is justified by their overwhelming informational advantage.)
> He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.
I agree with the first sentence. I would strongly dispute the second. It's precisely because I don't think I can predict what will happen next that I've zeroed my exposure to this entire ecosystem.
> He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.
I'm aware of these claims — there are rumors of wash trading by the big unbanked exchanges that I consider quite credible. I didn't include those in the piece because I wasn't able to find confirmatory evidence in the time I'd allocated to research it. I would be extremely interested if you could share any evidence you may have collected about these claims.
I’ve lately decided I need to be more moderate in my investing to avoid quagmires of conflicted indecision.
I believe Tether is organized crime and would love to see a deep investigation into the lifestyle and finances of everyone involved.
Thing is, right now, we know that more bitcoin are being purchased with REAL dollars than are being minted. So, the market has support. Yesterday, Grayscale bought 5132 bitcoin. They hold those in cold storage, so, they really bought them. I'm sure paypal, cashapp, square, also bought some.
But NO ONE in the industry has any motivation to question Tether.
The question becomes, how much bitcoin has been purchased by people that might sell it if Tether implodes. I am not sure it is a significant enough amount. Perhaps.
The current chart for bitcoin is extremely bullish. I would guess it moves up from here.
I think, given the context, it was the wisest call to make.
> What’s more, the supposed USD inputs (e.g., 401,431,056 USD in the top left transaction) are giving perfectly round Tether outputs (e.g., 400,000,000 USDT in the same transaction) in every block — regardless of the prevailing exchange rate or anything else.
Whale Alert uses exchange rates to convert currencies in the post. The "USD inputs" are simply the USDT that was minted converted using a USD/USDT exchange price (I'm not sure which one)
Whale Alert has also hard-coded USD/USDC to 1:1, which is why the coinbase pro minting Tweets match exactly
The question is, how low will Bitcoin go on Tether collapse? $20k? $10k?
Or will things get even crazier with $100k bitcoin crashing to $60k?
Companies like Alameda trade billions arbing this synthetic USDT/USD market close to peg:
https://twitter.com/AlamedaTrabucco/status/13487730276395622...
A cursory glance at Coinbase's USDC's market cap [1] shows that it too is growing at almost exactly the same pace as tether's [2]. I think most players in this market would agree that Coinbase, for all of it's failings, is unlikely to be planning an exit scam at this point.
It doesn't disprove the whole thesis, and some elements of it might have merit, but at least one element of it seems weak to me.
[1] https://coinmarketcap.com/currencies/usd-coin/
[2] https://coinmarketcap.com/currencies/tether/
So one could argue that people are trading largely unbacked USDT for backed and audited USDC. Which increases the demand for USDC and the USDC minting.
You would expect them to increase in lock step if this is happening. If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.
The steps you described don't result in new USDC being minted. That happens only when people send dollars to Coinbase and change them to USDC.
> If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors.
No, USDT has been around for a lot longer and lots of very liquid trading pairs are based on it. So if you need to buy lots of crypto currency you might need tethers so you can buy on an exchange with a liquid trading pair (BTC/USDT on Binance being the most liquid trading pair).
You can think of it virtually as three balanced flows:
USD -> USDC -> BTC (Retail BTC Investors)
BTC -> USDC (Tether refugees)
USDC -> USD (Coinbase)
If tou want USDC you can simply change your dollars on coinbase. No need for them to use their own funds to maintain a stable price - there's no usdc/usd market on coinbase.
It's when you combine the USDT/BTC correlation with the available evidence for Tether's unbacked issuance that the problem becomes clearer, in my view. When issuance is unbacked, it can be decoupled from real demand — and that's a degree of freedom that allows Tethers to be injected arbitrarily into the system. Coinbase's stablecoin is backed by audited reserves, so USDC is constrained by demand — making it more plausible that USDT is the causal factor rather than USDC.
You mean IPO? https://finance.yahoo.com/news/coinbase-ipo-will-be-controve...
The probability that something fishy is going on which would trigger a panic-sale when it's discovered is too high until we know more about the court case against Tether, imho.
Though all the people insisting on calling this FUD do make me wonder whether I'm seeing things or this is an "emperor's new clothes" situation.